MGI Pharma Inc.'s stock surged nearly 20 percent Wednesday after it announced a marketing deal for SuperGen Inc.'s Dacogen, as well as its plans to acquire two private companies focused on oncology.

If all milestones are met, Minneapolis-based MGI would pay $85 million to SuperGen. But it's also paying $32 million for the acquisition of Aesgen Inc., and $50 million for Zycos Inc. However, the products acquired through all transactions are expected to bring MGI $500 million in additional annual net sales about three to four years following their commercial launches.

"We see the completion of these three transactions as really helping form the foundation for us in creating a leading biopharmaceutical company," said Bill Brown, the company's executive vice president and chief financial officer. "So this is just a great day for all of us associated with MGI Pharma to really lay the groundwork for the future growth."

The company's stock (NASDAQ:MOGN) rose $4.62 Wednesday, or 19.9 percent, to close at $27.85. SuperGen's stock (NASDAQ:SUPG) rose 51 cents to close at $6.94.

Dacogen Could Reach U.S. Market In Late 2005

MGI gains exclusive worldwide rights to Dacogen (decitabine) from SuperGen and will be responsible for the development, manufacturing, commercialization and distribution of the product designed to treat patients with myelodysplastic syndromes (MDS), a cancer of the bone marrow.

SuperGen's president and CEO, James Manuso, told BioWorld Today that the payments will allow his company to grow, providing it with significant royalties downstream and eliminating some of the company's cash concerns.

In return for Dacogen rights, MGI will make a $40 million equity investment at $10 per share to gain an 8 percent stake in SuperGen. It also would pay SuperGen up to $45 million based upon the achievement of regulatory and commercialization milestones. SuperGen, of Dublin, Calif., initially would receive a 20 percent royalty on worldwide net sales. That rate would escalate to a maximum of 30 percent as sales grow.

"It's believed that the market potential in MDS alone would get us to the 30 percent royalty rate," Manuso said.

MGI has agreed to fund at least $15 million in further development costs of Dacogen, as it explores additional indications such as acute myeloid leukemia, chronic myelogenous leukemia and sickle cell anemia, as well as its use in combination with cancer agents to treat various solid tumors.

"We're very enthused about Dacogen," Brown said, "and believe the activity that it's already demonstrated in a variety of hematologic cancers warrants an investment, not only in what's been done in MDS, but for a pivotal trial that we intend to initiate in early 2005 for acute myelogenous leukemia."

SuperGen completed Phase III trials of Dacogen in March, and it will collaborate with MGI on the regulatory development process in MDS. The company submitted the first part of a rolling new drug application in the spring. They expect the filing to be complete in the fourth quarter and an FDA decision to come in late 2005. The companies are looking at alternative dosing schedules for Dacogen, including subcutaneous administration and more rapid intravenous infusions.

Clinical trials of Dacogen show it has a broad spectrum of activity in several hematological malignancies and solid tumors. Dacogen is a hypomethylating agent in which methyl groups are added to DNA to silence genes.

Manuso said MGI is a perfect partner for the product due to the company's experience in marketing oncology drugs. In the U.S., MGI markets Aloxi (palonosetron hydrochloride) injection, Salagen (pilocarpine hydrochloride) tablets and Hexalen (altretamine) capsules.

"We feel they're at a stage and size that is very amenable to the in-licensure of this drug," Manuso said. "I think it is going to be an important compound for that company."

Dacogen's main competitor would be Boulder, Colo.-based Pharmion Corp.'s Vidaza, which won FDA approval in five MDS subtypes in May. The worldwide market for MDS therapies is estimated at $1.3 billion.

About 20,000 to 30,000 new cases of MDS are diagnosed each year in the U.S., according to figures from the Aplastic Anemia and MDS International Foundation. The average life expectancy following diagnosis is six months to five years.

Aesgen's Saforis Moving Into Second Phase III

In addition to in-licensing rights to a cancer product from SuperGen, MGI also acquired two private oncology-focused companies: Princeton, N.J.-based Aesgen and Lexington, Mass.-based Zycos.

MGI signed a definitive agreement to acquire Aesgen for $32 million in cash, and possibly $58 million more in regulatory and sales milestone payments. Specifically, MGI will pay Aesgen shareholders $33 million upon the regulatory approval of Saforis for oral mucositis, and $25 million if sales exceed $50 million in the second year following a product launch. MGI will pay a 5 percent royalty on product sales. The boards of both companies have approved the acquisition. It will close later this year upon the approval of Aesgen's shareholders.

MGI intends to retain key Aesgen management personnel with the acquisition, possibly relocating them to Minneapolis.

"This technology for Saforis actually came out of the Mayo Clinic, so we have some Minnesota roots to that technology," Brown said.

Saforis, an oral formulation of L-glutamine, met its primary endpoint in a Phase III trial showing a reduction in clinically significant oral mucositis when tested in 326 breast cancer patients receiving anthracycline-based chemotherapy regimens. Patients receiving Saforis had a 22 percent risk reduction of clinically significant oral mucositis compared with placebo. Side effects were mild and similar to placebo.

"The data from that has been analyzed and we believe it would benefit from having a second Phase III trial that we expect to begin in early 2005," Brown said.

It is estimated that more than 15 percent of patients receiving chemotherapy, and more than 90 percent of patients receiving combination chemotherapy and radiation therapy for head and neck cancer, experience significant oral mucositis - a condition for which there are no FDA-approved drugs.

Zycos' Platform Targets Cervical Dysplasia, Tumors

MGI's final piece of news concerns the agreement to acquire Zycos for $50 million in cash. Both company boards approved the transaction, which is expected to close this month following a vote by Zycos stockholders.

Zycos has an iterative drug-formulation process that allows for the rapid development of immune response therapeutics. It already has generated two compounds that are in the clinic, ZYC101a and ZYC300.

MGI believes that the Zycos scientific team will bring expertise in immunology and the development of biologics to the company's operation.

"The Zycos facility is just outside of Boston, and we intend to use that location to build the MGI Pharma Biologics presence," Brown said. Zycos' co-founder, president and CEO, Mary Lynne Hedley, will become senior vice president and general manager of MGI Pharma Biologics.

ZYC101a stimulates an immune response that targets cells containing human papillomavirus, the agent that causes cervical dysplasia. Phase II data of 161 women conducted in the U.S. and Europe showed the product was safe and well tolerated. The drug promoted resolution of high-grade dysplasia in 70 percent of patients under the age of 25, compared to 23 percent in the placebo arm. In all patients, resolution was 43 percent with the drug and 27 percent with placebo. Patients received an intramuscular injection of ZYC101a every three weeks for a total of three doses. The most frequent adverse event was mild to moderate injection-site pain. MGI plans to start a pivotal program for the product in early 2005.

If ZYC101a is approved, MGI could use the same sales force it will use in marketing Aloxi injection for post-operative nausea and vomiting.

ZYC300, an encapsulated plasmid encoding a tumor antigen, completed a Phase I/IIa study in 17 patients with late-stage metastatic hematological and solid tumors. The product was well tolerated and biologically active. In addition to the two cancer products, Zycos has an immunotherapeutics development platform that may provide MGI with additional candidates.

As a result of MGI's three items of news on Wednesday, the company updated its financial guidance for 2004. It expects Aloxi injection sales of $140 million to $150 million, and other product sales of $27 million. For 2004, MGI expects a net loss before interest and taxes of about $80 million.

For 2005, the company estimates total revenues of $280 million, total expenses of $205 million and earnings of about $75 million.

Said Brown: "If we look at 2005, we will now have four marketed products in our portfolio. We'll have seven candidate products in clinical trials, and that includes five in Phase III studies and then two in Phase II studies."

UBS Investment Bank advised MGI on the SuperGen and Zycos transactions, while Banc of America advised the company on the Aesgen transaction. UBS advised Aesgen, The Kriegsman Group advised SuperGen, and SG Cowen Securities Corp. advised Zycos.

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